Facts of the case

Independent Ink manufactured printing ink that was compatible with the printheads manufactured by (and patented by) Trident, a company owned by Illinois Tool Works. Trident, however, required that anyone who used their printheads also use their ink, which was not patented. Independent Ink brought suit in federal district court under the Sherman Act, which forbids companies from tying a license to use one product (in this case Trident's printheads) to a customer's agreement to use another product (Trident's ink). The district court ruled in favor of Trident, finding that Independent Ink had failed to show that Trident's control of the printhead allowed them to raise prices above the competitive market rate. The United States Court of Appeals for the Federal Circuit reversed, however, finding that when the product for which a license is granted is under patent, the ability to raise prices of that product above market rates must be assumed, and the burden is on the defendant to show that such power did not exist.

Question

Under the Sherman Act, when the license to use a patented product is tied to a customer's agreement to use a separate non-patented product, is it assumed that the manufacturer of the patented product has the ability to raise prices above market rates?

John G. Roberts, Jr.:

Justice Stevens has the opinion in 04-1329, Illinois Tool Works versus Independent Ink.

John Paul Stevens:

This is an Antitrust tying Clause case that comes to us from the United States Court of Appeals for The Federal Circuit.

Petitioners own patents on components of printing equipment that is used to print bar codes on a variety of packaging materials.

Licensees of their patented equipment, the tying product, are required to buy specially designed, but unpatented ink, the tied product, from petitioners.

Respondent, a competing producer of ink, contends that the tying arrangement violates Section 1 of the Sherman Act.

The District Court entered summary judgment for petitioners, because there was no proof that they possessed market power in the tying product; but the Court of Appeals reversed, relying on decisions of this Court that have held that the fact that the tying product is patented is sufficient to establish market power for antitrust purposes.

It concluded that even if the District Court’s decision represented sound policy, it was the duty of the Court of Appeals to follow our precedents until we choose to overrule them expressly.

The principal case supporting the presumption that a patent always establishes the market power is the International Salt Company against the United States, a case decided during the 1947 term.

In that case, the Court accepted the Government’s submission that earlier cases applying a judicially created patent-misuse doctrine to tying arrangements should be applied in the antitrust context.

The rule of the International Salt case was enthusiastically endorsed not only by the enforcement agencies, but also in later opinions stating the tying arrangements serve hardly any purpose beyond the suppression of competition.

Over the years, however, the rule was subjected to growing criticism by scholars and patent lawyers who pointed out that some tying arrangements actually benefit competition, and eventually the Department of Justice and the Federal Trade Commission adopted a policy statement disavowing the presumption.

Of greatest significance, however, in 1988, Congress amended the Patent Code to eliminate the market-power presumption in patent-misuse cases.

After considering the Congressional judgment repudiating the patent-law rule that had provided the basis for the decision in the International Salt case, we have concluded that in antitrust tying cases, as in patent-misuse cases, market power must be established by proof rather than a mere presumption.

Accordingly, we reverse the judgment of the Court of Appeals and remand for further proceedings consistent with our opinion.

Our judgment is unanimous; Justice Alito took no part in the consideration or decision of the case.